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Afghanistan and its allies must bring transparency to mineral sector if country is to prosper

6th October 2011

Afghanistan and its allies must take urgent steps to prevent the potential benefits of its vast mineral and petroleum deposits being lost to the corruption that has plagued the aid effort of the last decade, said Global Witness on the eve of the 10th anniversary of the allied invasion. In the run-up to transition in 2014, many of the rights to access the country’s natural resources will be allocated. Transparency and fairness must be instilled from the outset to ensure these new revenue streams are used to build a sustainable economy and lift a generation of Afghans out of poverty.

Despite billions having been invested in aid over the past ten years, Afghanistan remains poor and heavily reliant on foreign assistance. Yet the country’s natural resources provide the potential to generate huge wealth. The government of Afghanistan has announced up to $3 trillion in mineral and petroleum deposits including copper, iron, gold, oil, chromite, uranium and rare earths.(1) Revenue from one mine alone is already equal to 25% of all other domestic revenues for the country.(2)

Increasingly, the country’s minerals are viewed as the best chance to bring stable, peaceful prosperity to Afghanistan and the region and to fill in the post-transition funding gap. But if badly managed, minerals could trigger further instability and entrench corruption. Countries like Cambodia and Nigeria have squandered their resources whilst at the same time receiving billions of dollars in aid.

“The government of Afghanistan and its allies have a narrow window of opportunity to become a world leader in resource transparency and embed good governance as rights to these resources are being sold over the next three years.” said Juman Kubba, Global Witness Campaigner. “The stakes could not be higher: get it right and minerals could be the catalyst for peace and prosperity; get it wrong and there’s a massive risk they will be lost to corruption, or form a new axis of instability and conflict.”

Afghanistan’s candidacy for the international Extractive Industries Transparency Initiative is a very positive sign of a commitment to greater accountability, as is Minister of Mines, Wahidullah Shahrani’s support for transparency in the sector.(3)

To build on this, the Afghan government and its allies must:

Embed clear, credible and transparent processes for the award of natural resource concessions that provide the Afghan people with information on how, to whom and on what grounds contracts are awarded;

Require extractive companies to disclose revenue paid to the Afghanistan state on a project-by-project basis.

Set up sound legal, regulatory and contractual frameworks which safeguard the economic interests of the Afghan people and address social, environmental and human rights risks;

Embark on a continuous process of local consultation and ensure appropriate grievance mechanisms to ensure the ‘buy-in’ of the Afghan people, particularly those directly affected by mining activities;

Publish existing and future concession contracts including associated infrastructure agreements to allow potential issues to be identified, implementation to be monitored and resource revenues to be tracked through the budget.

“The rush to find alternative sources of financing for Afghan development should not come at the expense of good governance. Systems are urgently needed to make sure precious mining revenues do not go the same way as the billions of dollars diverted in aid over the past decade,” said Kubba. “The country’s donors, including the US, the EU, the UK and Germany, currently fund the equivalent of 91% of Afghanistan’s GDP.(4) They should work with the government to promote meaningful measures that will wean the country off aid and on the road to a peaceful and prosperous future. This must be at the top of the agenda for the crucial international conferences in Istanbul and Bonn later this year.”

(1) Most recently, the U.S. Geological Survey (USGS) has estimated at least 1 million metric tonnes of rare earth element resources within the Khanneshin carbonatite in Helmand Province, Afghanistan. This estimate comes from a 2009-2011 USGS study funded by the Department of Defense’s Task Force for Business and Stability Operations (TFBSO), available here.

(2) See Ministry of Finance, 1390 Budget (currently in draft), page 28. Available here [Accessed 25 September 2011]. Aynak mining revenue is recorded at $53 million and listed separately from other domestic revenue recorded at $205 million.

(3) The Extractive Industries Transparency Initiative is a scheme which brings together government, civil society and companies in building a transparent and accountable extractive sector. Ministry of Mines, Wahidullah Shahrani, publically announced his support for transparency in the sector at the Fifth International Conference on the Extractive Industries Transparency Initiative.

(4) The 91% figure is based on a World Bank estimate of aid at $15.4 billion in 2010/11. Taken from a presentation by the World Bank Afghanistan Country Team entitled “Issues and Challenges for Transition and Sustainable Growth in Afghanistan” and dated 26 July 2011.